Dunleavy defends budget in wide-ranging interview

Gov. Michael Dunleavy responds to questions at a press conference on Jan. 16, 2018. Dunleavy sat down for an interview with Alaska Public Media and KTOO’s Andrew Kitchenman on Tuesday. (Photo by Skip Gray/360 North)

The transcript below is of a Feb. 26 interview with Gov. Michael Dunleavy. Click on the audio player below to listen to a lightly edited audio version of the interview.

Andrew Kitchenman: My first question for you is: Do you expect the positive economic impact from boosting PFDs (permanent fund dividends) to offset the negative economic impact of cutting state spending and state jobs?

Gov. Michael Dunleavy: Do I expect putting more money in the private economy by individuals who will determine how they spend that money to have a positive impact on the economy? Yes, I do. And if it’s a full PFD, yes, I certainly do. And if there’s a payback attached to it, more money going into this economy, I think will have a positive effect on the economy. I’ve talked to small business owners, I’ve talked to individual Alaskans, I did that this weekend, and absolutely I do.

Kitchenman: In town halls in Anchorage, both Democratic and Republican legislators have heard testimony on the budget that’s been overwhelmingly negative. What’s your reaction to that?

Dunleavy: There’s 730,000 people in the state of Alaska. There’s no doubt that there is a representation of Alaskans at these town hall meetings. But I too was up in the Mat-Su and Anchorage and in Fairbanks this weekend, and the folks that came up to me and spoke to me — individual business owners, small business owners, individuals not attached to government — their message to me was: This is why you were elected. We want to see you continue to have a discussion with the people of Alaska on a balanced budget — one that (has) revenues and expenditures meet, without having to take the PFD or tax Alaskans. That’s the message I keep getting when I talk to Alaskans.

Kitchenman: Have you heard anything in the last two weeks that has made you rethink anything about the budget?

Dunleavy: That, yeah, well, for example, this morning nationally the governor of New York came out and said that they’re in trouble because there are wealthy individuals who represent a large portion of their tax base fleeing the state of New York, as is New Jersey, Connecticut, Illinois and California. This was in the news this morning. Additionally, what also appeared in the news this morning was that there’s going to be an approach, a resolution by congressmen and senators to declare a national emergency as a result of the $23 trillion in debt. (Editor’s note: Republican Congress members have introduced resolutions in the U.S. House of Representatives and U.S. Senate to recognize “the national debt as a threat to national security.”) Those things are indicative of, once again, spending that’s out of control. Individuals leaving states that are high-tax states. So for me, it makes it even more important that we get our fiscal house in order this year than (to) let it linger because we are running out of savings and it’s going to be a problem for the state.

Kitchenman: OK. I had a question that’s related to the line item veto: Considering the pink slips that go out and municipalities having to strike mill rates, will you publicly communicate what you’re not going to accept before the Legislature passes a budget?

Dunleavy: No, well, I need to look at what the budget is that they’re putting together. We’ll examine that budget and we’ll make our decision, but we’ll use all the tools available as to the Constitution and make sure that we have a balanced budget.

Kitchenman: Why not phase in budget reductions over a period of two or three years rather than balancing the budget in one year, all in one fell swoop?

Dunleavy: Because we’re going to run out of savings and the CBR (Constitutional Budget Reserve). We have about 14 months left of savings in the CBR. If we don’t reduce the budget at all, then that leaves us the earnings reserve. And once we go into earnings reserve, that will quickly be depleted if we don’t get our spending under control. From ‘06 to roughly today, this state has spent probably an additional $24 billion above and beyond what would have been a baseline spend. The last four or five years we spent $14 billion out of the CBR. (Editor’s note: Roughly $10 billion came from the CBR and $4 billion from the separate Statutory Budget Reserve.) There’s no indication to me, I don’t think to anyone else, Andrew, that we would slow down our spending unless we put a balanced budget together. But also more importantly, get our constitutional amendments in the hands of the people of Alaska, so they can vote as to whether they want to be taxed; what they want to do with the Permanent Fund; or what they want to do with making sure that there is an appropriation limit that works as well as a savings plan. I think that’s part of the discussion that needs to happen at the legislative level: What are they going to do with these constitutional amendments? Are they going to give the people the right to vote on what they want the fiscal plan to look like going out in the future?

Kitchenman: I’m going to read a quote from a David Teal. I’m going to be interested in your reaction to this. This is from this morning, and I’m skipping a few of the phrases he used, but: “These are some major changes in policy. Where are the supporting documents? … Looking at the lack of justification, I began to wonder if the budget was designed in some way to create chaos. … Maybe creating chaos is just a clever way to forcing a conversation that needs to happen.” What’s your reaction to that?

Dunleavy: There has been thought put into this budget. You know, Mr. Teal has been around for a long time and has been part of this budget that has grown out of control. Somewhat surprised at what his comments are, but there has been thought put into this budget — a lot of thought, probably more this year than anytime in the past. We’ve tipped over every stone, we’ve looked under every layer we possibly could to come up with places where we could save money, to come up with places that we believe may not impact the majority of Alaskans. And even after doing that, we still have areas such as education and the ferry systems that impact a large portion of Alaskans. Even then, we looked at things, we examined things closely to get to this result of finding where we could reduce in order to have a balanced budget with a $1.6 billion deficit.

Kitchenman: OK. In recent years the state has had a CBR to draw from when oil prices went down. David Teal asked this question in Senate Finance this morning regarding your principles that revenue must equal expenditures and that the budget should be predictable. This is his question: “How will the budget be any more predictable than oil prices?”

Dunleavy: If you get your expenditures in line with your current revenues, we will have a predictable budget going forward. If the question is, “What happens if oil hits $5 a barrel?” well, of course, if we have such a reduction in revenues, we’re going to have to look at other ways to support the government or reduce the size of government further. That’s a hypothetical that we’re going to have to deal with. But what we’re dealing with right now is $64 a barrel oil. That’s what we based this budget on.

Kitchenman: So the effect on municipalities: They’ll either make reductions or increase their their taxes. Would you see any municipal tax increases as a violation of your principle that you don’t want to take from Alaskans in this budget?

Dunleavy: I ran on a campaign that we would not tax and we would get a balanced budget. We would focus on public safety. These were the main areas that we looked at when we were campaigning and the main commitments that we have. With regard to local municipalities, they have to take a look at their budgets as well, and they should. And they have to decide what they want to retain in terms of core services and what they want to get rid of, if that’s what they wish to do. They have to have a discussion internally if they want to raise revenues in some other fashion. That’s a municipal, that’s a local issue. That’s not an issue that that the state of Alaska, in terms of my administration, is looking at. That has to be something that’s dealt with at the local level.

Kitchenman: It is a result of your budget. So do you not see any responsibility?

Dunleavy: It’s a result of the fact that we have a $1.6 billion deficit. If we continue to spend at this level, how do we pay for that? Who gets taxed? How much of the permanent fund gets taken? What is the discussion that’s happening as to whether we don’t reduce this budget at all? Who picks up the $1.6 billion gap? How’s that going to be paid for? You know, that’s a question that’s going to need to happen as well here shortly.

Kitchenman: You said during the campaign that you plan to reduce the budget through efficiencies, not through eliminating services, and two and a half weeks ago when I asked you about, essentially about that, you said that you didn’t have the information that the Walker administration had. What specific information did you lack then? And why is your reaction to having this information that you have now not forcing a reassessment on revenue or PFDs?

Dunleavy: That we were told that we were going to have $75 a barrel oil. That certainly didn’t hold. So we’re at $64 a barrel oil. It’s interesting because many of the oil companies are basing their budgets on $50 a barrel oil. And so we had a huge reduction from $75 to $64 a barrel in our predictions on oil. That had a huge impact as to what our revenue was going to look like going forward. So that was a huge factor in helping to frame and construct this budget. Where are we going to get the revenues? What is the revenue, what’s the revenue outlook look like? And so that was something that we didn’t have. I don’t know where the other administration came up with $75 a barrel oil, but it’s certainly been in the low $60s here for the past couple of months.

Kitchenman: And I guess my second part of that question was: Now that you have that information about revenue, why is your response entirely on the reduction side and not considering revenue?

Dunleavy: Because I think if we take more revenue out of the pockets of Alaskans, we’re going to see more and more people leave Alaska. We supercharged this budget the last several years by taking money out of the CBR. We spent at levels that we couldn’t sustain. Yet we still lost population. The private economy did not improve. We’re still in recession. So spending more money for the government has not improved the situation in Alaska in terms of the economy or jobs. We have to get this thing under control now moving forward, or we’re going to have little hope of being able to attract investment here in the state of Alaska. And when I talk to businesses, small and large, the one thing they say to me is: We’ve got to get our fiscal house in order. You have investments sitting on the sidelines. Investment’s not going to hop into the state of Alaska until we’re able to get a sustainable budget, and that’s what we’re doing. That’s what we’re working on.

Kitchenman: Former Gov. Walker and his office were criticized by some legislators for not actively communicating more when they were seeking major policy changes. How do you see you and your staff communicating with the Legislature? Such as, will you meet regularly with leadership, or what’s your approach to communicating with the Legislature?

Dunleavy: We have been meeting with leadership. We’re going to be continually meeting with leadership, and we’ve been meeting with individual legislators. We’ll continue to do that. One of the first things I did when elected in office was set up meetings and met with individual legislators. We came into office on Nov. 6. We stood up our government as quickly as possible, and we put together a budget with a lot of thought. That’s why we went into February on this budget, as opposed to December or January — the sponsor substitute (bill) — because we put a lot of thought into it. But we have had communication with legislators. We’ll continue to have communication with legislators. The $1.6 billion deficit I think has gotten everyone’s attention. We all agree on the numbers: $64 a barrel oil; $1.6 billion (deficit). The issue now is how we’re going to deal with that. But we have been in communication with legislators. We’ll continue to do that. We have meetings set up, and we’ll continue to be with them.

Kitchenman: Will increasing the capital budget be a priority for your future budgets?

Dunleavy: I would hope so, because again, if we were able to use if we were able to use that $14 billion that we spent over the past four to five years out of the CBR, and if we put that in the capital projects, we could have had free electricity for all Alaskans for eternity, for example, rail lines to Canada. We could have built ports the size of Anchorage all over the state of Alaska to build this state. But what’s happened instead is, we’ve use that money to deal with an operating budget that we cannot sustain based upon revenues. So we certainly look at capital budgets moving forward if we have the revenue to do that.

Kitchenman: How are you going to approach decisions on the projects that were in one of the AOs (Administrative Orders) you rescinded last week?

Dunleavy: We’re going to take a look at all the projects and determine whether those projects are viable in the sense that they’ll return a dollar to Alaska. In other words, we’re done with projects — this administration — I’m done with projects in which Alaska puts in money, puts in $5 and gets a $3 return. We’ve got to make sure that these projects are viable; that they’re going to return a dollar to Alaska; and that they impact hopefully a large number of Alaskans.

Kitchenman: Just to be clear as far as what you just said: A dollar back to Alaska, would that be a dollar back to state government or to the state’s economy?

Dunleavy: I would hope both, but if we’re out-laying money, it depends on what the financing is going to look like. We’re looking right now at getting alternative financing for some of these projects, whether it’s federal or other. So anyway.

Kitchenman: And is there anything we haven’t talked about that you’d like to add or anything you’d like to emphasize?

Dunleavy: Yes. I think we need to engage the people of Alaska. All the people of Alaska. And the way you do that, Andrew, is again: This is an honest budget so people could take a look at it and have a discussion. But now we need to move to the next step. How are we going to continue to contain this budget moving forward? I propose that we look at the constitutional amendments that we submitted, because if we give the people an opportunity to vote on those constitutional amendments, I believe that they will support those constitutional amendments. We’ll have a sustainable budget going forward. We won’t see these wild swings of spending, and what excess revenue we are able to get out of this approach, we can pay down our pension obligations, we can put into capital projects. But we need to engage the people of Alaska. They should be given an opportunity also to vote on these constitutional amendments that we’ve proposed.

Kitchenman: Thanks a lot, Governor.

Dunleavy: You bet.

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